The Treasury cautioned there were limitations to its findings. It only surveyed 142 property owners, including 66 from Wellington and 33 from Auckland.
Those experiencing the most difficulty were also more likely to respond to the survey, which wasn’t mandatory.
So, while the Treasury warned the exact numbers produced by the survey were a bit rough, the general theme was noteworthy.
“Insurers note that MUB insurance is pricier because these buildings are bigger and pose more complex risks, especially damage from seismic events,” the Treasury said.
“Wellington’s earthquake risk is a significant factor for the insurance industry’s capital needs, meaning insurance costs in the city are expected to remain high.”
Survey respondents complained that investing in strengthening their buildings didn’t lower premiums.
“Insurers have suggested that seismic strengthening is unlikely to reduce insurance prices, but may affect whether insurance was offered,” the Treasury said.
“This is because the new building standard rating is a life safety risk measure, not reflecting potential damage and claims.
“For example, in the Kaikoura earthquake buildings that were 100% to code, but on reclaimed land, were damaged.”
Insurers indicated to the Treasury that strengthened buildings may see a 5% to 10% adjustment to premiums at most.
“The main factor that seems to impact price is the age of the building, which may be a proxy for better building standards over time. However, there were too many related variables in the data to confirm this,” the Treasury said.
It noted that respondents also struggled to get insurance cover to do seismic strengthening.
“To secure financing to strengthen earthquake-prone buildings to at least the minimum required by the Building Act 2004, there needs to be a guarantee that the building will be able to be insured, but insurers are often unwilling to provide this guarantee.”
The Treasury suggested the difficulties MUB owners faced could impede the push for more housing density in city centres, or the Government’s “wider housing priorities”.
A silver lining in the findings was that insurance cover was still available. Indeed, only one respondent didn’t have insurance.
“After the Kaikoura earthquake several providers pulled out of the Wellington MUB market (for example Tower, Allianz, with AIG and Chubb reducing Wellington exposure),” the Treasury said.
“Insurers have indicated that historically Wellington has not paid the full price for the capacity it uses. Insurers have been increasing Wellington premiums over the last decade to fully reflect the price of the cover being provided. This has helped to make the market more attractive for insurers and is starting to attract additional international capacity to the market.”
Eighteen of the survey respondents said they secured insurance directly from an overseas provider.
Survey respondents also raised concerns around the fact they couldn’t always save money by weakening the type of insurance cover they took out.
Under the Unit Titles Act 2010, bodies corporate can only take out indemnity cover if full replacement cover is unavailable.
“This means that many apartment and business unit owners that would like to reduce their high insurance premiums by moving from full replacement to indemnity cover, or reducing their sum insured, cannot do so if they have the option of getting full replacement insurance,” the Treasury said.
The Treasury said the survey was a one-off.
Insurance monitoring reduced
Separately, the Treasury is parring back the frequency of more fulsome insurance cost and coverage reports it contracts actuarial firm, Finity Consulting, to do.
The Treasury will only get these reports done annually, instead of quarterly.
The Government initially wanted the Treasury to monitor the impact of it lifting the amount of cover the Earthquake Commission (now called the Natural Hazards Commission) provides homeowners. Shifting risk from private insurers to the state disaster insurer in 2022 should have lowered premiums or slowed increases – all else equal, barring events like Cyclone Gabrielle.
The Government also asked the Treasury to stop looking at how the Government could respond to more aggressive risk-based pricing making insurance unaffordable for owners of high-risk properties.
The Treasury said it had instead been instructed to focus on the role of insurance in climate adaptation.
The Herald has asked Willis to elaborate on why she asked the Treasury to change tack.
Politicians of all stripes appear quietly happy to let high insurance premiums deter people from building in risk-prone areas.
Members of Parliament’s Finance and Expenditure Committee recently shared this view in a report that wrapped up an inquiry they did into climate adaptation.
The committee specifically expressed support for “allowing asset prices to better reflect long-term natural hazard risk”.
“The more that asset and insurance prices reflect risk, the more efficient outcomes will be,” it said.
Jenée Tibshraeny is the Herald’s Wellington business editor based in the Parliamentary Press Gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
